Gazprom faces a decade-long journey to try to recover revenue lost in the Ukraine war

As Europe struggles to make a major dent in the Russian economy following the country’s invasion of Ukraine two years ago, state-owned Gazprom has proven to be a major corporate victim after the continent began to wean itself from the group’s natural gas dependence. .

According to an internal report commissioned by the gas giant and published last November, Gazprom may not recover pre-war export revenues until 2035 due to sanctions on Russian oil and gas exports.

The document, reported by the Financial timeshighlights the monumental battle that awaits Gazprom as it digests multibillion-dollar losses and looks to other markets to ship its gas.

Gazprom suffered its first loss in 20 years in 2023, losing 629 billion rubles ($7.1 billion) after being locked out of its crucial Western European export market, a huge swing from its net profit of 1.2 trillion. of rubles ($12.9 billion) in 2022.

Last year, Gazprom exported only 28.3 billion cubic meters of natural gas to Europe, according to Reuters analysis, an annual drop of 55.6%.

According to the report, by 2035, exports to Europe will average between 50 and 75 billion cubic meters per year, a third of pre-war export levels.

“The main consequences of the sanctions for Gazprom and the energy industry are the contraction of export volumes, which will not return to their 2020 level before 2035,” he said. FOOT the authors reported writing.

“Since Gazprom, which does not have its own proven technology to produce LNG at large capacity, is the only company that exports gas through pipelines and those volumes are declining, Gazprom’s role in the gas industry is expected to decline.” , the authors wrote. .

Gazprom hopes to offset its loss of European trade with other markets, particularly China. The country is in talks with Russia to develop a Power of Siberia-2 pipeline, but negotiations have stalled.

Internally, some Gazprom officials have complained about the loss of European business, calling it devastating for the group’s long-term prospects and a waste of years of hard work.

“The work of hundreds of people, who for decades built the export system, has now gone down the toilet,” said a former Gazprom director. Reuters last year, speaking anonymously.

The Russian economy is advancing

As Gazprom continues to reel from Russian President Vladimir Putin’s invasion, the Russian economy is in a comparatively healthy position.

Despite facing inflation above 7%, production continues to grow and finance Putin’s war machine. GDP is expected to grow 3.2% this year, according to the IMF. That compares with growth of 0.8% in the eurozone and 2.7% in the US.

Meanwhile, major European economies, particularly Germany, are struggling with the new reality of more expensive oil and gas imports.

The head of German renewable energy group RWE said Germany will probably never fully recover from its former dependence on Russian energy. “We will see a bit of recovery, but I think we will see significant structural demand destruction in the energy-intensive industries,” RWE boss Markus Krebber told FOOT.

Subscribe to the CFO Daily newsletter to stay up-to-date on the trends, issues and executives shaping corporate finance. Sign up free.

Leave a Comment